3 Defensive ETFs to Hedge a Market Pullback

Are you worried about news in the Middle East or Japan (NYSE:EWJ)? Maybe it’s time to add some defensive ETFs to your watchlist.

When markets pull back, investors flee to safety. Three classic safety sectors are Utilities (NYSE:XLU), Consumer Staples (NYSE:XLP), and Healthcare (NYSE:XLV).

Utilities (NYSE:XLU)

Utilities are best known for their stable businesses and dividend payments. Although short term energy use fluctuates, the long term trend is consistently up. Add virtual monopolies granted by state governments, and you have a safe place to store your cash for the long term.

The easiest way to get involved is the Utilities Select Sector SPDR Fund (NYSE:XLU). This is a highly liquid and cost efficient way to gain diversified exposure to US utilities. If you want safe and secure, this is one to tuck away. Check out XLU’s interactive chart, fundamentals, Twitter stream, and more.

If you’re interested in 4 additional Utility ETFs, check out our feature “The Top 5 Exchange Traded Funds for Your Utility Investing List“.

Consumer Staples (NYSE:XLP)

Consumer Staples (NYSE:XLP) are your basic necessities: toilet paper, tooth paste, and everything else you won’t cut back on in the event of a recession. Companies in this sector are some of the biggest and most trusted in the world: Procter & Gamble Company (NYSE:PG), Wal-Mart Stores (NYSE:WMT), Coca-Cola Company (NYSE:KO), Kraft Foods (NYSE:KFT), Pepsico (NYSE:PEP), and Colgate-Palmolive Company (NYSE:CL).

An ETF which holds all these companies and over 30 more is the Consumer Staples Select Sect. SPDR (NYSE:XLP). This is a highly liquid and cost efficient way to gain diversified exposure to consumer staples. It also pays a ~2.5% dividend if you’re holding it for the long term. Check out XLP’s interactive chart, fundamentals, Twitter stream, and more.

Healthcare (NYSE:XLV)

You’ve been hearing about healthcare stocks since brokers offered a vision of aging boomers. However, they haven’t done much … yet.

Now, Boomers are really entering the last third of their lifespan. Their need for healthcare products will create record demand in the US. A diverse group of companies which will benefit include Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE), UnitedHealth Group (NYSE:UNH), and Medtronic (NYSE:MDT).

An ETF which gives you exposure to a wide range of healthcare companies is the Health Care SPDR (NYSE:XLV). This is a lot less risky than predicting which individual companies will win and lose in the costly game of competing in the healthcare sector. For example, no single FDA denial or inquiry will tank your portfolio. This is a nice way to invest without losing sleep. Check out XLV’s interactive chart, fundamentals, Twitter stream, and more.

If you’re interested in ETF investing, we invite you to enjoy our other feature coverage of exchange traded funds here.